Businessweek Archives

China's Promise

The people who criticized my posting comparing programming skills in India versus China are absolutely right. It was a shallow exercise. Still, I thought some of the responses from commentators made it worthwhile.

Here’s some more potentially controversial data points on China outsourcing that I picked up at Outsource World in NYC yesterday. It adds to the picture of a nascent Chinese outsourcing industry that could become a serious player in the future.

--Talent: China is expected to produce 400,000 computer science and software grads this year, about the same number as India. That’s up from 250,000 last year and 189,000 in 2004. So the tech workforce is growing mighty fast. It’s interesting to note a recent NASSCOM report out of India that showed that only about 25% of the new grads there are immediately employable in tech service jobs. The Indian tech service outfits have become the de facto finishing schools for the country’s engineering graduates.

--Exports: China is expected to produce $1.293 billion in software service exports this year. That’s an ant compared to the $20 billion plus produced by India. But, remember, it wasn’t too long ago that India’s software exports were ant-like, too.

--Customer plans: Gartner says that in 2004 only 8% of US business leaders surveyed said they would outsource work to China. Forty percent now say they expect to play the China outsourcing card by 2008. That’s a steep curve.

--Cost comparisons: Cyrill Etschinger, CEO of IT United, one of the top outsourcing firms in China, provided some labor cost comparisons, which are suspect considering who he is. In tier-one cities, he says hourly labor rates are 3-5% lower than in comparable Indian locations. In tier-two cities, the gap is 12-15%. Seems to me I had heard Chinese wage costs were actually higher. ??

--Attrition rates: Eric Liang, CEO of LongTop International, says his attrition rate is just 4%. If other Chinese outfits can do that well, it’s a big deal.

08:50 AM

outsourcing

TrackBack URL for this entry:

http://blogs.businessweek.com/mt/mt-tb.cgi/

These days, not a single say passes by without coming across some heated online debates on “India vs. China” somewhere. However, it is odd to me the online comments are more one-sided bashing from Indians than debates from both sides. I had a few chats with my Chinese friends on this. Their reaction may be surprising to you. In their mindsets, the comparison of India to China is as absurd and funny as comparison of Cuba to US and they do not even consider it worthwhile at all arguing with low-IQ Indians. It seems against common wisdom that authoritarian communist China outshine India economically, given Indian’s market economy, capitalist system and all those IITs modeled after American MIT and Harvard etc. Why? Their answer is a two-letter word “IQ”. It is not the IQs of the elite few Indians who migrate to US, but the national average IQ of population who make up the assembly workers, office clerks, carpenters and plumbers etc. These parts of population contribute most of a nation’s GDP. They argue that India’s average IQ of 81 is at incomparable disadvantages with China’s national average IQ of 100 (for ref, UK’s IQ is at 100 and US at 98). That is why few Chinese bother to debate “India vs. China”. These comments may not be politically correct. But it does explains why capitalist money flows to communist China, not free India.

Posted by: tom sm at October 19, 2006 03:04 AM

Dear tom sm,

Why are you using this westernised pseudonym of tom sm instead of a name that shows that you are a chinese? Wherever there is a blog about India and china you copy and paste your foolish IQ theory from one blog to another. Isn't it a true representation of the Chinese IQ ? You are saying that the greater economic development of China in comparison with India at present is because of higher IQ of the Chinese. You also say at the same time that IQ of USA is 98 when it is 100 for China. In that case China should have been economically more advanced than USA. Your IQ must be below 50 to put forth this argument. If you are unable to understand, I can tell you the real reason for the present economic advantage of China over India. It is because the Chinese people are slaves of the Chinese government. There is no individual freedom in China and people are made to work like slaves for the fulfilment of megalomaniac ideas of Chinese rulers. They run military tanks over students( I hope you have heard about Tianenmen Square incident) when they protest against Chinese rulers. They kill poor peasants in the name of 'cultural revolution' or 'the great leap forward'. They bulldoze poor people's homes to make way for expressways and skyscapers to show to the world that Shanghai is better than New York. Since the Chinses people like you are slaves of the rulers , you can not do anything to protest. I hope you know this can not happen in India.

Posted by: Proud Indian at October 21, 2006 11:49 PM

The statement of TOM SM that his Chinese friends "do not even consider it worthwhile at all arguing with low-IQ Indians" is mean and outrageous. He should apologize for making such a statement. I wonder how his comments were allowed to appear in this blog.

Everybody knows about the absurdity of these IQ calculations. Even the calculation of IQ of an individual has been under dispute. For argument sake if we agree that (1) the IQ figures given by tom sm are correct and (2)economic progress of a country is proportionate to its calculated IQ, then China should have been ahead of USA in economic progress.

The little lead that China has at present over india in social indices is not because of any superiority in IQ. It is because of the cruel Chinese ruling system which suppresses freedom and make people work like slaves. Chinese autocratic leaders want to show-case China as an advanced country by making super highways and skyscrapers by bulldozing houses of poor people. There is no other country in the world which has rolled military tanks over student demonstrators. I do not consider China's progress anything worth admiring since it has been achieved over blood and tears of millions of poor people.

Posted by: Proud Indian at October 23, 2006 02:55 PM

Dear Proud Indian:

It does not necessarily mean that I have to be a Chinese, just because I claimed that Chinese have 1 standard deviation advantage in average national IQ over Indian. My quotation of Indian’s average IQ of 81 is also not based on Chinese government twisted stats as you claims. It is based on reliable surveys and tests conducted over decades and published on various respected journals and publications. It is compiled by Richard Lynn and Tatu Vanhanen in their famous book “IQ and the Wealth of Nations”. You can find the info @ http://en.wikipedia.org/wiki/IQ_and_the_Wealth_of_Nations. The point I want to make is that the groundless boasting and self-aggrandizing is so typical of Indian culture traits and normally a sign of low IQ. Emotion aside, let me ask you a few questions. How long has India inherited British democracy and capitalist system? It is something, shall we say more than 60 years, right? How long has India modeled its’ IITs after US education system? It is also something, shall we say 60 years? What is India’s current per capita GDP? It is $750/year. That is around 2% of US per capita GDP. That is below African average. That is why Chinese is angry that US compare India to China and Chinese feel humiliated when Indian compare themselves to Chinese if you know what I mean.

Posted by: tom sm at October 24, 2006 01:21 AM

We have a Chinese winner.. tom sm...

BTW, I am already late for my flight to Bangalore...and nope.. I will never consider China for my IT needs!

Posted by: Jim Patterson at October 24, 2006 09:07 PM

Dear tom sm,

Who is boasting here ? Who got annoyed because people are comparing India with China ? Who was saying that comparison of India with China is like comparing Cuba with USA ? It is true that per capita gnp of India ( at market exchange rates) is only about 2 per cent of that of USA. But what is China's per capita GNP ? It is only 4 per cent of that of USA. Great comparison of USA and China !

China started reforms in 1978. India started them in 1991. That is 13 years later. Still India has managed to achieve near levels of growth as that of China. That too with one tenth of FDI China gets ( India $8 billion per year and China $80 billion per year). That means that Indian development is made by domestic talent and resources whereas China's development is made by foreign companies who come to China to exploit the cheap and slave labour available locally. Now you can understand who has better IQ.

Posted by: Proud Indian at October 25, 2006 07:37 PM

Two sides of the coin the have to weighed here.... china's phenomenal economic prowess stems straight from the communist govt. No opposition is tolerated n the govt is the law n law is govt there. hence any policy can be implemented n opposition gets ruthlessly pulled down.

On the contrary in India, there has been no single majority govt, it constantly becomes a game of numbers to form the govt... end result? all parties(i have literally lost track of em...) try to appease their local votes and reforms take a back seat....

when this is the case, i think its commendable the way india's performed so far(surviving the asian crisis,post pokhran economic sanctions). More than the govt driving the economy, its a bunch of business class which is driving India.

Comparing India Vs China.. is definitely a no-no.

Posted by: karthik at October 26, 2006 12:28 AM

The author forget to mention the domestic market factor. China is a growing market for tech services too. Why should China rely on Indians if they can produce their own tech engineers?

Posted by: Andy at October 26, 2006 04:06 PM

Dear Proud Indian:

Indian Brahmin stubborn and lowly reasoning is really mind-boggling. I am not a Chinese. Then why am I blogging here? I had done some social studies and psychology surveys in India and China. I know both countries pretty well. A couple of years ago, I was dragged into a few such pointless online debates on the same stupid “India vs. China” thing as a consultant. You can track our blog at http://www.vdare.com/sailer/india.htm. Your argument is backward that Chinese can not claim IQ superiority because of some social indices advantage. Rather, it is because of India’s IQ disadvantage that China achieved some social indices advantage. India was supposed to win the race, given her common-law legislative system, capitalist system and market economy etc. Do I think or wish China overtake west and US? Not at all! Like you rightly claimed, democracy will win over dictatorship. North Korean is also a high IQ country. However, North Korea per capita income is only 5% of that of her democratic brother. Do you see my point here? These days, US Medias are full of China bashing. I totally understand the hard feeling here. I just wish US do not become too cocky and complacent here. However, it does not provide a ground where Indian claims so much world leading blah, blah, blah ….

Posted by: tom sm at October 26, 2006 10:55 PM

We keep hearing the logic that India received only 10% ($6 billion) of China's $60 billion FDI in 2005 and it achieved a 7.6% growth, so it is far more efficient than China. This is myth that should not be perpetuated. The year 2005 was 14 years after India started reform since 1991. So let's see what China was doing around 14 years after its reform since 1978. In 1992, China got a total of $11 billion in FDI, and it's GDP growth rate was a whapping 14%. The year before that, 1991, China's FDI was $4.3 billion and its GDP grew by 9.2%. So it appears that Chinese economy was running even more efficiently than the Indian economy has been recently. The notion that Indian economy is far more efficient than that of China because it received less FDI is very misleading. But it also shows that in terms of FDI, India is roughly where China was at the same stage of development(back in 1992).

Posted by: JP at October 28, 2006 05:49 AM

Tom SM,

You may be right with your IQ Theory. But why are you arguing with Proud Indian. Look he's 'Proud' and will bring in all the data (some irrelevant also) to prove his point. Use your IQ and stop arguing with him.

The whole world is so obsessed with China. The poor China of the past is transforming, admirably, into a modern industrial country churning out virtually everything that can be produced in a factory. The US sees it as a huge threat to itself in the not-so-distant future because of the PRC's geo-political ambitions . I guess, the US is not the only 'developed' country to feel that way. There are many. When these are so obsessed about China, what's wrong if we (Indians) compare ourselves with China.

If you really care to compare economies, please consider what is called 'PPP' basis. The absolute figures of the GDP are not really comparable you know. You consider the Purchasing Power Parity basis, and all the equations change dramatically. India will be around $2500-3000 billion whereas China will be between $3500 - 4000. The US meanwhile remains the same. In short, India and China are two huge responsible countries not minnows. You just cant write-off either. Do that to your own peril. If the Chinese dont consider it appropriate to compare themselves with us, let them not do it. It's fine. No issues.

There are many idiots (in all the countries of the world) with internet access who post ill-informed comments without understanding the PR they get to their country. In that case, don't just generalise things.

Posted by: Santosh at November 1, 2006 09:23 AM

Finally as i was reading the comments i was wondering when someone would bring in the concept of 'PPP'. Looks like santosh beat me to it. But Tom SM, i really wonder if rational thought process is something that you possess.

While you berate our so-called British imposed education, then why is it that China is scraambling to promote the same education system to ensure that China is globally competitive.

I have some work now but have got a lot more facts, figures and comments yet

Posted by: Sandman at November 2, 2006 05:11 AM

tom sm doesn't know that you need to have lower IQ, in paper, to earn more. The higher the IQ the more worker bee you will become. Management 101

Posted by: poor desi at November 2, 2006 10:23 PM

You consider the Purchasing Power Parity basis, and all the equations change dramatically. India will be around $2500-3000 billion whereas China will be between $3500 - 4000

Looks like you get wrong data. You can check the above article which can give you a lot of raw data on comparing China and India.

Posted by: Steven at November 3, 2006 11:53 AM

Labor rates are a mystery. And my good buddy Cyrill knows this. It really depends on the type of work.

R/3 talent in China will be more expensive than comparable talent in India, but for manual software testing, China will be a lot cheaper than India, especially if the project can be done in a Tier 2 city (e.g., Xi'an, Wuhan, Chengdu).

CS graduates. Here's the bad news (for China): They're nearly worthless upon graduation and China-based firms are reluctant to provide much training (compared to Indian firms) for fear of job hopping. [As a former VP with China's two largest U.S.-focused ITO firms, I've seen this reality.]

China is better in embedded software; India is better in enterprise software. That's a fact and can't be challenged. Yes, there are exceptions, but this is a general rule that holds up under close scrutiny.

The Gartner report released this past July was a shocker to everyone. The data is highly suspect. This is NOT the reality of what is seen by the firms based in China!! And what are we talking about, ISVs or end users? China-based firms cannot support end users in the States. That's a fact, too. Again, there are exceptions, but very few. U.S.-based firms with China operations are a different story, however. But pure plays can't do it. Do you know how long it takes for Chinese programmers to get a U.S. visa? Think your worst nightmare ... and it's worse than that.

Attrition rates of 4%? What a lie!! ALL the turnover rates that I've seen quoted are lies, lies and more lies. India and China are equally as bad. However, turnover rates in Tier 2 cities in China are, indeed, much lower relative to BJ, SH and SZ.

Posted by: David Scott Lewis at November 7, 2006 10:08 AM

As an Indian my hope is that we will produce a lot of enterpreneurs and they will be catalysts in the developmenet of Indian Business.

Indian Firms are small but all are profitable, as opposed to Chinese firms which are not profitable and do not have honest accounting, a problem recosgnized by the likes of Goldman Sachs.

Also on M&A, indian firms bought 37 bn #$ worth of business outside, so looks like we will do FDI.

FDI is needed when the country lacks the business class as in China. Indian firms are tying up with private equity firms to get capital, Videocon bought Daewoo's operations and that was 750 mn dollar transaction which did not figure in any statistics.

China leads on manufacturing and providng facilities to the poor, which India is catching on.

Posted by: Rahul Modak at November 7, 2006 04:37 PM

As a betting man, and by golly people know my people likes to place a bet now and then, I would place my money on China.

Posted by: NoWorriesBeHappy at November 12, 2006 06:04 PM

Having lived abroad, I have seen how hardworking my Chinese colleagures are, and I'm pretty sure that Indians are not on their guard, they'll find a way to catch up in the software sector.

On on unrelated note, I would be a little cautious about the statistics being bandied around about the growth of the Chinese economy. As an Indian, you may construe my views as biased, but even in academic circles in the West, no one is entirely happy with the accuracy of Chinese government statistics.

Posted by: Mukund at November 13, 2006 10:47 AM

Nation downs, nation rises. Every nation has its days. China inherited a lot from India in old days. The human history is so short comparing to the life of the earth. The greatest nations like India and China will have their days. Cheers!

It's silly and insane to argue for such questions and dramatically to generalize.

Posted by: BothGreatest at December 1, 2006 05:14 PM

HaHa,

All I can say is that anyone indulde in this conversation about superiority and comparing IQ of 1 billion people with another billion plus has a low IQ.So definately a chinese claiming to be a non-chinese and a proud indian(probably more proud than he would have been if he had reasonable IQ) are

good street figter, which rarely require IQ.

I think both countries have a good chance to become strong economies and give lot of support to rest of the countries , both as a market as well as a source of talented people. They should work together to make most populous continent a stable

prosperous place and a another powerhouse along with US to alleviate poverty from not only asia, but also africa.

Tom and proud indian,Please don't unleash hate on me..because i have limited IQ, which atleast provide me with a hate speech filter.

Posted by: devin at December 3, 2006 06:18 PM

Look the outsourcing industry status in China,compare it with in India,everyone knows

China gets a great opportunity to develep its outsourcing industty. I hope that the LongTop will play a leading role in the outsourcing industry someday.

BTW: I 'm master candidate of China ,and just got a offer from LongTop International^_^

Posted by: Benny at December 14, 2006 03:50 AM

I completly agree with you. actually china and India, both have there own way to calculate FDI.Like in 2000, original FDI in china is 40 billion, but if we calculate as we calculate indian, than its only 20 billion, and in same indian is 8 billion.

And about product quality, I m asking questions to Indian, will they purchase Chiness bike, no. low products , no. So, its not like that

Posted by: Himanshu Jain at December 22, 2006 03:45 PM

I have seen almost every other thing made in China. But dear, I havent come across any chinese brand which is respectable, durable and elegant (not cheap). I might be ignorant, but this is my biggest query. Is chinese economy growing just on cheap labor to make things whose designs are made in USA and Japan.

Anything that china can outsource respectably, does'nt go to india. India does software and Call centers; I guess basically due to strong english education system. But Indian Pharmaceutical industry is booming.

I saw chinese bikes in auto-show while I was in India. I must say I was surprised at the compromise they made on quality. This, when they make perfect Ipods, computers etc, etc when told how to do so by people from other countries.

Both India and china are evolving due to the global pressures. Basically, cheap labour availability. But do we have it to make it to the top. The Brands and innovation. Please let us not talk about IQ till we prove something in terms of innovation. Let us respect that and see where this global pressure takes us.

Posted by: Jas at May 1, 2007 04:03 PM

Hi Jas,

China does not have any respectable brands to call their own but they do have ones which are prooving to be a headache to the major players.Example are hua-wei tech which until recently was banned by the Indian Govn from bidding on govn projects due to security concerns(or was it protectionism,call what you may).

Talking about Indian companies which do a lot of outsourcing,Which ones in the software industry are world leaders(Does Infosys have any world class product to call their own).Can any software company in India name one product to themselves.I mean any OS,yada/programs in the tops developed by these so called companies.

Let us talk about Microsoft.Indian people have an urban legend about 60 pc of the employees in Microsoft are Indians.People in the west wonder is it becasue of so many Indians developing their code that makes Windows so buggy.

Why then Indian people always go on boasting about their IIT/IIM.Would any of the so called IIT and IIM been possible without western help.Not only have they been modelled but substantial help given by the west to start these institutes.Besides how many of their graduates are willing to come back to the country.A very small percentage.So what is the use of these top institutes when they are of no benefit to the country.

I am no Indian basher or Chinese praiser,but let us give credit where it is due.Yes India is good at a lot of things but then dont go overboard and claim Indians are the the most superior breed of the world.

All my classmates and my college professors are sick of 2 off my Indian classmates who keep on ranting in class about how good Indians are at this and the inventor of the pentium was an Indian and 60 pc of the scientists at NASA are indians etc and the list goes on.We all know what urban legends are made up of,but we all choose to look the other way in class.